CFD TRADING RISKS

See information below on CFD Risks.

        

CFDs and Risk Exposure

By entering the CFDs trading market, you are in with the chance of high returns over a relatively short space of time. In addition, you are using a low-cost way to invest as your initial deposit is a small margin of the overall contract. Capital Gains Tax is not charged.

But before you start CFD trading, there are some factors which are highly recommended for consideration. For one, your investment could be affected in a number of ways by sudden changes in the market, by changes to the foreign exchange rate or marketplace volume.

Are CFDs Suitable for All?

Asking yourself if you are suitable for CFDs is a good first question to ask yourself. You might have already thought about how much money you want to invest (in itself a very important question) and might have considered various ways to invest (another crucial topic). But one thing to remember is that not every investor suits CFDs just as people have different personalities, so investor styles can vary.

One factor to take on board is that you need to be familiar with your product and be aware of risk exposure.

Some articles or blogs on the internet might claim that anyone can become a successful trader on the CFDs market, even without prior knowledge. While it may be true that anyone could become a successful trader, you do need to research the subject in order to be in with the chance of experiencing success. Finding out about the instruments, products and risks of the trade are highly important.

CFDs might be a 'side activity' for many people, but they should be treated like a profession you need to know what you are doing in order to gain returns! By doing background work, you can save yourself thousands of dollars.

How Big is the Risk?

Compared with normal share dealing, CFDs pose a far higher risk to the investor. Margin trading means that relatively small alterations in the price of underlying shares can mean massive wins and significant losses.

It is no secret that the markets are notoriously volatile. While CFDs trading allows you the chance of making returns on both a falling and rising market, there is always the possibility that you will not get back the money you originally invested and might have to make additional payments.

Remember also that there is no guarantee that past success leads to future wins.

What are my Legal Obligations?

You are legally obligated in the event of a loss. You are liable to make up the deficit to the broker if your position loses and your contract does not contain enough funds to cover it. The larger the position you take, the larger the 'margin calls' that your broker may have to make.

More Risk Factors

Here are some additional points to consider:

Stay within Means

We have covered the fact that the market can change suddenly and unpredictably leading to significant risk of loss. Your position could change by 10% - so if you started with $5,000 your position now stands to lose $10,000.

Your original $5,000 is gone and you now owe the broker a further $5,000 it isn't a situation that a person is happy to be in! Therefore it is really important that you only trade within your means. Don't play with money that you don't have only speculate with money that you can afford to lose.

Overtrading

Overtrading is something which can affect lots of traders. Too many trades are carried out say, if the investor is feeling successful after a few wins. Similarly, the investor might be trying to regain losses by placing more trades. Becoming addicted to trading is a common occurrence with the CFDs market being able to access your platform online means trading all hours of the day is all too easy.

The soaring costs of a losing position are often mentioned, but psychological risk is present too when overtrading becomes apparent, the investor can end up in a deep hole which is difficult to climb out of.

Important Note:

Which Way To Pay Australia is an independent online comparison website. Please note that while part of the site content centers on the review and comparison of financial products, we do not at any time encourage or recommended site visitors to begin a CFD transaction or to trade on any index, commodity, currency, stock or share. Please make sure that you are fully aware of the product before you begin any transactions with CFDs trading.

Which Way To Pay Australia takes reasonable measures to ensure that data on the website is accurate. However, we are not aware of your personal investment goals or needs. The website content is designed for information and interest only.

We would recommend that if you are unclear about your suitability for CFDs trading that you seek independent financial advice.

Which Way To Pay Australia has outlined some of the risks involved in CFD trading. If you are considering a broker or platform, make sure that you gain a full risk document from the company with which you intend to trade. There are many positive aspects to this type of trading, but it is wise to realise what the risks are when dealing with a financial product or tool which offers such a fast-paced, challenging and potentially rewarding investment. Once you are fully prepared, it is up to you alone to decide how to use CFDs.

        


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